Gatto, I know the question was directed at Barg, so I hope you and Barg don't mind me 'Barg'n' in.
IMO there is no 'discounts' for desirable locations, in fact you usually have to pay a premium for desirable locations. Its got more to do with rental thresholds. Rents tend to be stickier than prices, particularly in desirable locations as more people act to bid prices higher to own assets in desirable locations. Renters on the other-hand are less likely to bid rents higher in equal proportion to upward movements in prices. There comes a point where the outlay for rents is too high (unaffordable) and its better just to find a different location to rent or just buy.
So as prices move higher or stay high, the potential rental income as a proportion of the price reduces or stays low. This effect is less in other suburbs because buyers don't tend to bid asset prices up as much as people do in desirable locations. But if demand for ownership does expand quickly in other suburbs then yields too would start to reduce, as has been the case in Sydney and Melbourne in the recent past because, as stated earlier, rents tend to be stickier..
This is the reason why I have stated many times on here - landlords are restricted by how much they can increase rents more so than what they are sometimes forced to pay to own an asset. If incomes rise slowly or don't rise at all, the ability for rents to increase is limited (a threshold) before it becomes literally unaffordable. So the idea some on here have that they can raise rents when and by however much they like to compensate for changes in taxation, interest rates etc. is ridiculous as they will be limited by affordability thresholds..
